The IAB, along with the NCTA and other industry groups, has filed a lawsuit to block the FTC’s “Click-to-Cancel” rule, which requires companies to offer a simple cancellation process for subscriptions and auto-renewals. According to Reuters, the lawsuit argues the rule is too broad and exceeds the FTC’s authority.
When the FTC announced the rule last week, with a 180-day implementation period, we questioned whether streamers and publishers would be affected. The IAB says they will be. The rule applies to “negative option” marketing, as well, where services automatically renew unless canceled, and mandates clear disclosures, informed consent, and the elimination of misleading practices that lock in and trap consumers. While gym memberships are often cited as the prototypical annoying model this is helping to stop, the rule also impacts media companies like streaming services and news publishers if they rely on auto-renewals.
The IAB is suing, claiming the rule is flawed and harmful to the subscription industry. They argue it will result in high compliance costs, disrupt the subscription model entirely, and limit companies’ ability to offer competitive deals. The IAB also believes the FTC underestimated the rule’s economic impact, especially given the 180-day timeline, despite the rule being in development for over a year.
Why This Matters:
If streaming services and news publishers start losing subscribers or face challenges retaining them due to stricter cancellation rules, it could have a big financial impact on their numbers and business models.
Subscription-based businesses depend on consistent, recurring revenue from loyal subscribers. Losing subscribers would immediately affect their bottom line, reducing that reliable income.
As a result, retention becomes harder, so companies would need to invest more in attracting new customers to replace the churn. This could drive up customer acquisition costs, which are already high in a saturated market.
If retaining subscribers becomes a challenge, companies might have to shift focus toward ad-supported models instead of subscription-based ones. Streaming services like Netflix and news publishers could expand/further expand free, ad-supported tiers to rely more on ad revenue (we are seeing this on the streaming side, especially). However, the FTC has also been pretty critical of ad-supported revenue generation, so there is tension here. How can you demonize both subscriptions and ad-supported?
So, where does the potential harm to consumers come into play. Well, from a quality perspective. To offset subscriber revenue losses, companies may cut costs by scaling back content production or offering lower-budget options. This could kill content quality, which then frustrates consumers, which then creates a sort of FTC-induced cycle of subscriber loss.
Experts React:
IAB’s EVP for Public Policy, Lartease Tiffith has said that the rule “would discourage people from subscribing to valuable products and services in the first place” and that “it’s clear the FTC overstepped its boundaries and underestimated the costs of these changes to popular services.”
He has also criticized the rule as “another sign the FTC fails to grasp the significance of its own rules, which could upend a business model with consumer benefits. Mandating more fine print, requiring unworkable technical schemes, and prohibiting businesses from offering better deals without layers of consent, would cost consumers time, money, and services they enjoy.”
Our Take:
This is a tough one for the IAB. The rule is broadly popular, and while the argument about costs to subscriber-based businesses makes sense, the lawsuit feels like it’s likely aimed more at delaying its implementation rather than changing the framework or outcome. This would give the ecosystem more time to adjust and plan. We wonder if the IAB is also arguing that subscription-based services may need to complicate the signup process to account for the new cancellation rules. Not sure, but that seems like a challenging argument to make.
